24 July 2013

There’s desperate and then there’s Dunderdale #nlpoli

Take away the bluster:  “The agenda won’t be set by Quebec in terms of how we do our work, how we develop our resources, and how we access markets.”

Take away the old fairy tales :  “I would characterize this as a desperate move by a company that’s been trying one way or the other to thwart development on the lower Churchill for a number of years, unless it was clearly in the best interests of the people of Quebec.”

Dispose of all the crap and what’s left of Premier Kathy Dunderdale’s comments on the Hydro-Quebec legal challenge about the 1969 is very few words that reveal much.

First, there’s this bit about the connection between the 1969 power contract and Muskrat Falls.

There’s a nebulous line, without a doubt, between the renewal contract of the Upper Churchill contract and the development of the Lower Churchill, but it is nebulous.

Having claimed that Hydro-Quebec wouldn’t win,  there’s this other bit about the impact if Hydro-Quebec succeeds:

…we’re highly confident that it wouldn’t have a significant impact. There are ways to mitigate.

To understand what Kathy Dunderdale said, apply the rule of opposites.

What Dunderdale is counting on is that most of her audience, including the reporters, had not read the full Hydro-Quebec statement of claim.  Well, for those who want to have a go, you can find it at Tom Adams’ website.  SRBP is working on finding a generous and knowledgeable soul willing to do some translation work in exchange for lots of gratitude and a pat on the back.  For now,  this summary will have to do.

The statement of claim asserts that there are two real difficulties confronting Hydro-Quebec as a result of actions taken by Churchill Falls (Labrador) Corporation.

Under the 1969 power contract and the renewal contract,  Hydro-Quebec enjoys the exclusive right to purchase almost all the power produced at Churchill Falls and to benefit from the flexible planning and coordination of Churchill Falls production with the rest of Hydro-Quebec’s operation  (Para 3)  “Almost all” means everything except the very specific bloc of power that Nalcor can obtain by recall (300 MW and the bloc for Twin Falls (225 MW)

According to Hydro-Quebec, CFLCo now contends that in the renewal period, Hydro-Quebec will be entitled to receive something other than less than all the electricity, as provided in the 1969 contract. This is the first of the two issues HQ wants the court to determine.

The second issue is the accusation that CFLCo has been violating the 1969 contract by selling more than the 300 MW to which it is entitled by the recall. 

The two ideas are intertwined since CFLCo would only be able to explain any sale of electricity beyond 300 MW by claiming that there was some amount of electricity from Churchill Falls that HQ did not already option under the 1969 contract and the renewal.

And here’s where these issues are directly tied to Muskrat Falls.

Since Tom Adams first raised the issue, Nalcor has insisted that there is no problem with the output from Muskrat Falls.  Nalcor official  have claimed that the water management agreement allows Nalcor to bank electricity from Muskrat Falls in the Churchill Falls reservoir and take it back later on, when Nalcor needed it.  How that might work has been sketchy until now. 

An assessment presented here in 2012 pointed out the seriousness of the issue of water management to production at Muskrat Falls.  The 2041 Group has also pointed out that portions of the 1969 contract give Hydro-Quebec the right to schedule delivery from Churchill Falls and , in effect, to control the operation of the reservoir and plant.  Hydro-Quebec has a 34% interest in CFLCo.  This would directly affect the ability Nalcor claimed under the water management agreement to manage the water flow along the whole river.

Nalcor itself pointed out the problem this brings.  The company described a scenario in which the Churchill Falls plant ran flat out for 20 days of the month and at a trickle for the last 11 days:

Under average conditions, the resulting production at Gull Island would be 1,519 MW for the first 20 days and 443 MW during the last 11 days of March. During a dry period, this scenario would require production levels of 1,471 MW during the first 20 days of March, and 395 MW during the last 11 days. Consequently, without a water management
agreement, Nalcor would be limited to approximately 400 MW of continuous delivery in a long‐term power purchase agreement for Gull Island. [Emphasis added]

As SRBP noted:

2250 MW installed but capable of producing only 400 MW reliably. That’s only about 17%.  If you had the same situation at Muskrat Falls,  the 826 MW of generation would spit out – reliably – the equivalent of only about 140 MW.

Now look again at Kathy Dunderdale’s claim that a Hydro-Quebec victory in this law suit “wouldn’t have a significant impact” on Muskrat Falls.  If the court supports Hydro-Quebec’s view is on its first problem, the  Muskrat Falls is essentially crippled.

For extra measure, Hydro-Quebec notes that these latest problems are part of a pattern of behaviour by the provincial government to interfere with the 1969 contract.  Hydro-Quebec could refer to the Water Rights Reversion case,  the 2008 water rights bill,  and one related  aspect of regulatory appeals filed by Nalcor in Quebec that would have had the effect of taking away Hydro-Quebec’s ability to schedule deliveries from Churchill Falls as part of an integrated system. The Regie decision used to be available on the provincial government’s website but they have disappeared.

That could be an implicit threat of wrongful interference in a contract by a third party, given that the party to the contract is CFLCo, owned roughly one third by Hydro-Quebec and two thirds by Nalcor.  The provincial government – as sole shareholder of Nalcor  - might be a third party.

That bit of legal speculation to one side, the key part is that Hydro-Quebec is able to point to several attempts by the provincial government since 1976 to break the contract by various means.  That issue could have an impact on this case, especially if it is proven that CFLCo broke an unmistakeable term of the contract by selling more than the 300 MW to which it is clearly entitled and limited.

If the court funds yet another instance of interference in the contract,  that would likely also have an impact on the Nalcor’s suit against Hydro-Quebec.  The case is still outstanding.

Not exactly an insignificant lawsuit now, is it?

Oh, and when Kathy Dunderdale talks about Hydro-Quebec’s desperation,  just remember what she said in 2009.  Around the time the provincial government here had to call the House of Assembly into an extraordinary session to deal with an issue related to Churchill Falls, Dunderdale dropped a bombshell on province-wide radio.  For five years,  according to Dunderdale,  she and then Premier Danny Williams had tried to get Hydro-Quebec to take an ownership stake in the Lower Churchill. They didn’t want any redress for the 1969 contract, despite Williams’ pre-2003 pledge he would sign no deal without redress.  Hydro-Quebec just wasn’t interested.

That hardly sounds like the gang at Hydro-Quebec are actively trying to destroy a project that is absolutely no economic threat to HQ at all.